Rights Issue Process and Eligibility

Understanding the process and eligibility is essential — it ensures that shareholders can participate effectively, avoid missing critical dates, and make informed decisions on whether to subscribe, renounce, or trade their rights.

Rights Issue Process

The rights issue process consists of a series of structured steps, each with specific timelines and regulatory disclosures.

Key Stages in the Rights Issue Process

1. Board and Exchange Intimation

• The process begins when the Board of Directors approves the rights issue and notifies the stock exchanges.
• The company also files a Letter of Offer (LoF) with SEBI or the stock exchange, outlining key details such as the issue size, price, record date, and ratio.

2. Record Date Announcement

• The record date determines which shareholders are eligible to receive Rights Entitlements (REs).
• Only shareholders whose names appear in the company’s records as of this date are entitled to participate.
• Example (T+1 Settlement): If the record date is August 10, investors must buy shares on or before August 9 so that the shares are credited to their demat account by August 10. Buying on the record date (August 10) itself would make them ineligible. 

3. Credit of Rights Entitlements (REs)

• Eligible shareholders receive REs in their demat accounts, usually within a few days or a day before the issue opens.
• REs are temporary securities, often shown under a separate ISIN (e.g., ABC-RE), representing the right to apply for new shares.

4. Trading of REs (if Renounceable)

• In renounceable rights issues, shareholders who do not wish to apply can sell their REs on the stock exchange during the trading window.
• Similarly, new investors can purchase REs from the market and apply for shares.

5. Application Window

• Shareholders (or RE holders) apply through ASBA (Application Supported by Blocked Amount), net banking, or their broker platforms.
• Applications must be submitted within the issue period — a minimum of 7 days and a maximum of 30 days from the issue opening date.
• Investors can also apply for additional shares if they expect undersubscription.

6. Allotment and Credit of Shares

• After the issue closes, the company finalises allotments based on valid applications.
• Shares are credited to demat accounts, and any unutilized funds are released.

7. Listing of New Shares

• Once credited, new shares are listed on the stock exchanges.
• The timeline from issue closure to listing generally spans 7–15 working days.

Rights Issue Eligibility

Eligibility defines who can participate in a rights issue. This depends primarily on shareholding as on the record date and compliance with regulatory norms.

2.1 Eligible Shareholders for Rights Issue Application

The following categories are typically recognized under SEBI and stock exchange regulations:

1. Resident Individual Shareholders – Individuals holding equity shares as on the record date.
2. Hindu Undivided Families (HUFs) – Represented by their Karta.
3. Domestic Companies and LLPs – Indian entities already owning shares.
4. Institutional Investors – Including mutual funds, insurance companies, and financial institutions.
5. Foreign Portfolio Investors (FPIs) – Subject to SEBI and FEMA regulations.
6. Non-Resident Indians (NRIs) – Eligible with RBI approval and adherence to foreign exchange rules.
7. Qualified Institutional Buyers (QIBs) – Entities such as banks, pension funds, or SEBI-registered investors.
8. Any other legally entitled persons holding shares as on the record date.

Investors should refer to the company’s Letter of Offer for specific details on eligibility and the categories of shareholders permitted to participate in each rights issue.

Key Considerations for Shareholders

• Buy shares before the ex-rights date (usually one business day before the record date under T+1 settlement). However, as a precaution, investors may consider buying at least two trading days before the record date to ensure eligibility without settlement delays.
• Monitor official announcements on the stock exchange website or track right issue updates on the Chittorgarh website for the record date, issue price, and ratio.
• Decide whether to apply, sell, or renounce REs before the issue closes.
• Apply early to avoid last-minute rejections or payment failures.
• Keep all documents — such as the Letter of Offer, acknowledgement slips, and payment proof — until allotment.

Key Takeaways

• Timely tracking of key dates — especially the record date, RE credit, and application window — is essential for eligibility.
• Investors must ensure shares are held before the ex-rights date.
• Rights Entitlements (REs) give the option to subscribe or renounce; managing them properly prevents forfeiture.
• A clear understanding of the eligibility rules, renunciation process, and documentation checklist helps investors avoid procedural errors.
• Staying informed ensures investors maximize value and avoid missing limited-period opportunities offered through rights issues.